Small-scale mining
This is a follow-up to our previous Medium article Introducing IotaOrigin In this second article, we’ll be exploring more insights about the small-scale mining market.
Artisanal and small-scale mining (ASM) is able to fill the supply gap created by the demand for renewable energy. 15% to 20% of all mineral raw materials are mined annually in ASM (Buxton 2013). The deposits are usually located near the surface have high ore grades and can be activated promptly to cover the supply gap on world markets. ASM is mainly located in developing countries, mostly operated informally by local population due to a lack of employment opportunities. The informality of the sector often forces communities into dependence on illicit financing, which is associated with severe human rights violations and can lead to regional tensions. This gave rise to the definition of conflict minerals.
Conflict minerals are regulated internationally. The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the EU Conflict Minerals Regulation, and the Dodd Frank Act Section 1502 define the minerals tin, tantalum, tungsten, and gold (also known as 3TG) from the Democratic Republic of the Congo (DRC) and its neighbouring countries as conflict minerals and require proof of origin and compliance with due diligence measures. It is difficult for the already financially weak ASM sector to comply with the regulations, as the import industry passes on the tracking costs to the mines and producers. This means that the commodity market continues to rely on illegal financing and is even pushed into it. For example, 99,9% of the gold mined from the DRC’s ASM sector is smuggled out of the country, approximately 12–20 tons of gold per year (Federal Institute for Geosciences and Natural Resources, BGR, 2019). Accordingly, the ASM sector must be supported so that international regulations can be adhered to without creating cost pressure as well as making legal financing possible.
More than 45 million people worldwide work in the ASM sector, and another 150 million people are indirectly dependent. The number of people employed in small-scale mining has tripled since 1990. The annual revenue generated is officially put at $100 billion. Worldwide, 90% of the mining workforce is employed in small-scale mines (delvedatabase). Raw materials from small-scale mining can create 100 times more jobs and save up to 600 times more CO2 than the industrial sector (Schein, 2022). Although small-scale mining is becoming increasingly relevant, it is not the content of public discourse and is fundamentally undervalued.
ASM share of global production for a selection of raw materials:
15–20 % Gold
15–20% diamonds
15–30 % Cobalt
30–50 % Tin
50 % Tantalum
80% colored gemstones
(EU Science Hub)
Small-scale mining can not only satisfy the high demand for raw materials, but also supports the implementation of a responsibly implemented energy transition and makes a significant contribution to achieving the UN Sustainable Development Goals. Small-scale mining thus contributes to achieve securing sustainable development on an economic, social and environmental level.
Figure 1: https://www.sciencedirect.com/science/article/abs/pii/S0016718519302714?via%3Dihub
ESG and impact criteria
Before we can manage and live in a sustainable way, we need to invest together in a sustainable way. Environmental, Social, Governance and impact Investments enable investors to act sustainable and thus pave the way to a green economy.
What defines ESG and impact investments?
Figure 2: The spectrum of social and financial investments (Boffo, R., and R. Patalano 2020)
What are the criteria?
Figure 3: ESG criteria (Boffo, R., and R. Patalano 2020)
Macroeconomic trends show the importance of this Market. Impact Investment increased from $77 Billion in 2015 to $500 Billion in 2019 to $700 Billion in 2020. An increase of over 900% over five years (The GIIN 2022).
ESG investments even reached the value of $35 trillion and account for one-third of AUM (assets under management). ESG investments are expected to further increase to $50 trillion by 2025 (GLOBAL SUSTAINABLE INVESTMENT REVIEW 2020). Moreover, the inflow into sustainable investments is steadily increasing and gaining pace. Deutsche Bank expects 95% of AUM to be managed under an ESG mandate by 2030 (Fig 3).
Figure 3: Assets under management with an ESG mandate. (Jim Reid et al. 2018)
Currently, small-scale mining is not able to benefit from this trend. 72% of impact investment groups are from developed countries and invest 75% of their assets in developed markets, thus failing to leverage the potential of the ASM sector (The GIIN 2022).
Figure 4: ASM financing (The GIIN 2022).
IotaOrigin aims to reduce this discrepancy and provide ESG and impact capital access to a new market segment, small-scale mining. This is not only an option, but essential if we want to implement a responsible energy transition without accepting massive overexploitation, uncontrolled deforestation, environmental pollution and human rights violations.
To achieve this, we want to wake up a sleeping giant and create a small-scale mining industry from a currently informal sector by using DeFi and tokenised commodities to introduce transperency and financial inclusion.
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